The UK’s current business tax system has long been ineffective - holding back investment, misallocating resources, and creating high administrative costs for businesses.
The government needs a new tax plan that redirects spending on ineffective tax reliefs towards proven growth-enhancing policies - and modernises tax administration to reduce the compliance burden, especially on smaller firms.
TBI has today set out a new business tax roadmap to overhaul the system and unlock growth.
The Tony Blair Institute for Global Change (TBI) has today set out how business tax reform could boost the economy by £20bn - nearly double the expected impact of the government’s flagship planning reforms In A Pro-Growth Roadmap for Business-Tax Reform TBI Director of Economic Policy Tom Smith outlines a plan to recalibrate the UK’s business tax system, making it more efficient, investment friendly, and growth oriented. The publication comes against a highly uncertain global economic backdrop, with the government constrained by limited fiscal headroom. It sets out how the Chancellor must therefore look for creative, revenue-neutral ways to restore business confidence and reinvigorate business investment. While the government’s Corporate Tax Roadmap, published last autumn was a plan for stability, stability alone is no longer enough. What is needed now is a clearer strategy for reform: a plan for how the business tax system should evolve to do more to support growth without requiring major new spending. A central part of this strategy must be to recycle revenue spent on ineffective tax reliefs into areas that deliver a stronger economic return. Examples highlighted by TBI in the report include the Patent Box, Business Asset Disposal Relief and National Insurance employment incentives for young workers and apprentices. TBI’s new report sets out a three-pillar roadmap for reform, all deliverable within a revenue-neutral framework:
Pro-growth business-tax reform: Expanding capital deductions under Corporation Tax and replacing Business Rates with a Commercial Landowner Tax could boost UK GDP by 0.3 per cent by the end of this parliament, worth up to £10 billion in today’s terms. In the longer-term, these reforms could lift GDP by 0.75 per cent, or over £20 billion – nearly double the expected impact of the government’s flagship planning reforms.
Better-targeted business-tax relief: Eliminating tax reliefs that show little measurable benefit to growth could free up £9.3 billion by the end of this parliament to help fund the pro-growth tax changes in Pillar 1. Additional reliefs – including the VAT Registration Threshold – could then be lowered early in the next parliament once the system is modernised.
Tech-enabled modernisation: The UK’s tax system remains too complex, too costly to comply with, and too easy to defraud – placing a heavy compliance burden, particularly on smaller firms. A modern, digital-first approach to tax administration – streamlining the Making Tax Digital programme and introducing a Digital ID for businesses and mandatory e-invoicing - could help cut compliance costs, improve enforcement, and create the infrastructure for more targeted support in the future.
TBI Director of Economic Policy, Tom Smith said: “With the global economy at a turning point and no room for major tax cuts, the Chancellor must look for creative, revenue-neutral ways to reinvigorate growth. “Business tax reform is one area where bold action could make a real difference to growth. The current system is overcomplicated and poorly targeted, with many expensive tax reliefs that deliver little economic return. Crucially, it fails to incentivise the kind of investment the economy needs. “Our reform plan could deliver a £20 billion boost to GDP – nearly double the impact of the government’s flagship planning reforms - by redirecting ineffective tax reliefs into areas that deliver a stronger economic return and by modernising how tax is collected.
“Change won’t be easy – every relief has its defenders. But by recalibrating the system with a clear strategy and a sharper focus on what actually drives growth, the government has a chance to rebuild business confidence, simplify the system, and unlock investment.
“This isn’t about cutting taxes or raising them – it’s about making the tax system smarter, so that it enables businesses to do what they do best: innovate, invest, and drive growth.”